Mike Vietri is Chief Distribution Officer for AmeriLife, a national leader in distributing and marketing insurance and financial solutions.
America is confronting the realities of an uncertain future. With economic fears on the rise, more people have started to question whether they’ll ever be able to retire, let alone retire the way in which they planned.
A recent survey by Axios and Ipsos found that 20% of workers lack the confidence that they’ll ever stop working at any point in their future. More and more Americans believe they’ll lack the savings to live comfortably in retirement. Concerns over Social Security solvency and pension loss breed pessimism, with workers saying they’ll have to depend on their 401(k), IRA or other retirement savings, if any exists, to get by.
What’s causing retirement anxiety?
Why now? As The Hill explained, while the markets have been generally positive this summer, our country’s still reeling from the inflation that skyrocketed between 2021 and 2022. All that turmoil led to decimated 401(k)s across the U.S., with the average account losing about 20% of its value in 2022, the Society for Human Resource Management said. With Americans calculating $1.8 million as the magic number they think they’ll need for retirement and a median retirement savings of just $87,000, most workers have a long way to go.
But, however unattainable this goal might seem, they need a starting point. A changing, unpredictable world requires an all-hands approach to accumulation and retirement income.
What’s the solution?
I believe the answer is for wealth advisors to help their clients develop a well-balanced plan. No matter the stage of retirement planning someone is in, investors have options for supplementing or replacing depleted (or even nonexistent) retirement savings. Examples include fixed and variable accumulation annuities, which can help build or rebuild a nest egg, or immediate and deferred income annuities, which can provide a reliable stream of income.
With accumulation annuities, as the investor pays money into the annuity, their account value grows with interest over a period of time. When the time comes, they can either withdraw what’s in the account or convert it into an income stream and receive payments. The two most common types of accumulation annuities are fixed and variable annuities.
• Fixed annuities: With these, the money is locked away for a certain period of time, and the investor knows how much interest they’ll earn. Earnings from fixed annuities are tax-deferred, and because investors are not investing directly in the market, they can grow their money at a guaranteed rate without the risk of loss.
• Variable annuities: With this type of annuity, the contract value grows depending on the performance of the investor’s sub-accounts. As such, this retirement option requires investors to be comfortable with some market risk. Variable annuities don’t offer the same guaranteed return as fixed annuities, though many feature other protections, like a death benefit guarantee.
For a more guaranteed income stream, income annuities could be a feasible option. There are two main types of income annuities: immediate and deferred income annuities.
• Immediate income annuities: With this option, investors make a single payment, and the annuity starts making regular payments shortly after. These payments will typically last for the rest of the investor’s life. Immediate annuities give investors a reliable income that won’t be affected by fluctuations in the market.
• Deferred income annuities: These are similar, but the payments start at a set time in the future. After the deferral period, payments begin and will continue for a set number of years or the rest of the beneficiary’s life.
Providing Comprehensive, Diverse Solutions
When crafting retirement plan strategies for investors, wealth management professionals must navigate a complex landscape of financial options and individual circumstances. To ensure the best outcomes, it’s crucial to ask the right questions and consider key factors like:
• Risk tolerance: By assessing an investor’s comfort level with market fluctuations and potential losses, advisors can tailor investment strategies that strike the right balance between growth and stability.
• Long-term goals: What are their aspirations and lifestyle expectations? By gaining insight into their desired retirement lifestyle, advisors can better align investment choices with income needs, ensuring a sustainable and fulfilling retirement.
• Time horizon: Evaluate the number of years the investor has until retirement and the desired length of their retirement phase. This information helps determine the appropriate asset allocation and investment strategies. For clients with longer time horizons, a more aggressive investment approach might be suitable, as this would allow for potential growth and compounding over time. Conversely, clients nearing retirement might require a more conservative approach to protect their accumulated wealth and ensure a stable income stream during their retirement years.
• Economic impact: How much or little will the investor be affected by inflation and rising healthcare costs? Inflation erodes the purchasing power of money over time, thus necessitating strategies that account for rising expenses. Health care costs, too, can significantly impact retirement income. By factoring in potential medical expenses and exploring insurance options, advisors can help investors safeguard their retirement savings and mitigate the risk of unexpected healthcare costs.
By addressing these critical factors, we can create comprehensive retirement plans and effective strategies that provide investors with the confidence and financial security they need to thrive.
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